Trump Orders Hiatus for SIFI Designations, a Review of Post-Crisis Regulations
April 21, 2017 by Frank Klimko
WASHINGTON – President Donald Trump signed an executive order directing Treasury Secretary Steven Mnuchin to suspend any new systemically important financial institution designations for nonbanks while the government reviews the Financial Stability Oversight Council and related post-crisis financial regulations.
“You are calling for a much-needed time out from the financial stability council’s process for designating financial institutions as systemically important,” Mnuchin said at a press conference with Trump on April 21. “Until that review is completed, we have agreed not to designate any new nonbank financial institutions except in cases of emergency.”
The executive order was one of three the president signed on April 21 as part of his administration’s larger effort to reduce regulatory obligations that insurance companies have said make it hard to turn a profit.
“Our goal is to make this (a) smarter, more effective process that reduces the kind of systemic risk that harmed so many Americans during the financial crisis,” Mnuchin said.
In February, Trump also asked Mnuchin for a broader review of the post-crisis regulations. The text of the orders was not available at press time.
The Dodd-Frank Act regulations don’t work, Trump said.
“I am instructing Secretary Mnuchin to review the damaging Dodd-Frank financial regulations that have failed to hold Wall Street accountable,” Trump said. “They have done, really in many cases, the opposite of what they were supposed to. They encourage risky behavior.”
“This is really the beginning of a whole new way of life,” Trump said.
The House Financial Services Committee will hold a hearing on April 26 to debate a bill to roll back much of Dodd-Frank, including the government’s authority to designate SIFIs. The bill would repeal two fundamental parts of the Dodd-Frank reforms, the ability of the FSOC to designate a nonbank financial company as a SIFI and the provision which allows the FSOC to recommend enhanced prudential measures (Best’s News Service, April 20, 2017).
In response to the February directive, Mnuchin is already writing a report about the current state of financial regulation, that is to be delivered in June, said Ian Katz, director of Capital Alpha Partners.
“We regard the FSOC memo as a quasi-moot point,” Katz wrote in a research note. “Barring some unforeseen financial calamity, the chances that a Mnuchin-led FSOC would designate additional companies is right around zero.
“So the review of FSOC will likely criticize the designations made under the Obama Treasury and recommend that the council’s designation authority either be eliminated or severely restricted,” Katz said.
With the removal of the SIFI designation on MetLife Inc. last year via litigation, the only other two U.S. insurers so designated are American International Group Inc. and Prudential Financial Inc.
(By Frank Klimko, Washington correspondent, BestWeek: Frank.Klimko@ambest.com)